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For all the attention flowing into greener corporate practices, there’s scant agreement about how best to document these efforts. Standalone sustainability reports have become de rigueur for most multinationals, pressure is growing to integrate environmental and sustainability practices into a single annual report.

The push for such so-called “integrated reporting” was the topic of a meeting at the BSR 2010 conference, When CSR and Financial Reporting Meet: Integrated Reporting, where “AK”Adam Kanzer, managing director and general counsel of Domini Social Investments, emphasized that the issue is likely to end up on the “to do” lists for many boards of directors and investment relations offices as the SEC moves towards setting rules about treating the “materiality” of sustainability issues to earnings and reporting.

In advance of SEC rulemaking, Kanzer points out many companies are headed in the same direction for strategic reasons. Over 90% of CEOs, when polled, report that sustainability is critical to future success. “If it’s material to business, then it’s inadequate not to include it in the annual report,” Kanzer said. “The ultimate question is: why do separate reports?”

As yet, just a handful of companies — mostly European, such as Astra Zeneca — are producing integrated reports, and there is scant consensus on how to prepare such reports. And while guidelines remain hazy, Kanzer said, lawyers in investment relations offices are always likely to opt out until rules are set.

“The SEC definition of materiality is based on what a reasonable investor would need to make an investment or voting decision,” said Kanzer. “Take that broad interpretation, then put it in hands of corporate counsel, and you end up with boilerplate disclosure, something not very useful to investors.”

Investors should therefore be pressing for integrated reporting ahead of the rules, Kanzer argues. Mainstream financial analysts are more likely to integrate these issues into their recommendations when sustainability factors are presented along side conventional financial metrics in an same annual report. Left to an external report, Kanzer concedes, sustainability issues are more likely to be ignored.

Kanzer, who has served on an SEC advisory committee on sustainability reporting standards, explained that determining what is “material” to earnings is still more art than science, which complicates the decision about how to report such issues.

For instance, Kanzer recounted, Costco recently changed its seafood purchasing practices in response to pressure from Greenpeace and other NGOs. “If Bluefin tuna goes extinct, neither Costco nor its competitors will sell it anymore,” so they’ll be equally affected, plus sales reduction will be undetectable to the company’s bottom line, Kanzer explained. “So it’s hard to make a case that the decision is material to Costco’s financial reporting. But it is clearly material to our evaluation or the company as an investor.”

_{Photo CC-licensed by featheredtar.}